Monday, 12 May 2014

Review: You Can Be A Stock Market Genius by Joel Greenblatt

With a title like "You Can Be A Stock Market Genius" I was expecting this book to be full of marketing hype and not much actual substance.  I thought it would be full of tips on investor psychology (which is actually very important) but very little on how to invest (which is what we all want to know).

For the second time in a row (the last time was The 4-Hour Workweek - see my full review) I was pleasantly surprised.  This is the first book written by Joel Greenblatt, the founder of Gotham Capital and although he later admitted that it was probably to advanced for the beginner investor.  This book is brilliant if you have been investing for a while, understand how stock investments work and how you generally look at companies to value and have been wondering how successful investors actually spot opportunities in the market.

What sort of investments does the book cover?

This book is probably best described as a special situations investment book.  It covers a variety of special situations which consistently deliver stronger than average returns and it goes through how these situations work, why they deliver the returns, what you need to consider and most importantly also backs up every situation with relevant examples and evidence.

The special situations the book covers include:

  • Investing in spin-offs and rights issues
  • Risk arbitrage and merger securities (although advises not to try this at home)
  • Bankruptcy and restructuring investments
  • Recapitalisations, LEAPS, Options and Warrants
One of the best thing about reading this book is that Greenblatt goes to the effort of explaining to you what you, as an individual investor, should look at and what you should avoid.  This is invaluable.  Most investment books provide explanations but not actually what you as an individual investor should do.

Does the invest advice actually work?

Everyone provides
evidence for their own particular investment philosophy but I can't make it work for myself...does this one actually work?  I have invested using some of the tips and tricks that Greenblatt goes through and it does work.  I have invested in spin offs and rights issues consistently and have consistently outperformed my other investments.

I have stuck to these ones because they are the simplest to understand and keep track of and because after I read the book I started making hypothetical investments based on the concepts outlined in the book (i.e. I didn't trust it with my cash just yet) and they obtained superior results.  I then moved on to doing it with real cash and have done very well out of it.

If this works...why do you invest using anything else?

For me it is about managing risk.  I would rather have a mix of strategies and investment approaches to minimise the risk that I am going to blow up my entire portfolio.  And before you ask..yes my portfolio returns would have been better if I had done nothing but invest in situations this book describes, but I am comfortable taking a lower return for a more certain outcome and augmenting my return with the strategies outlined in this book.

I am just starting to invest in this book for me?

In a word...NO.  This book actually requires you to understand the basics of valuing a company and investments and it also helps if you have invested in the stock market before and can take the turns and roundabouts that come with a stock market that seems to over-react to every single bit of news.

If you are just starting out I would suggest two other Joel Greenblatt books (which he wrote after he realised that this book was too advanced for most beginner investors).  These are The Little Book that Still Beats the Market - (full review) and The Big Secret for the Small Investor - (full review).  Both these books are great for anyone that is just starting out in the share market and is looking for strategies to invest in the market.

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  1. Hey 90M,

    Gotta love being surprised right? :)
    Would you say that this investment book stands out from the others?

    On a tangent what are your thoughts on the budget? Sure there'll be a post from you on it..

    1. Hi Jef - I'd say this investment book stands out if you are already a reasonably experience share investor. I haven't really read any other special situations investing books like it. It's not the book to read if you are just starting out investing in shares.

    2. Re the budget I did think about doing a post on it but have decided not to go into politics too much more on this blog (like I used to).

      I'm not the biggest fan of politicians generally but the breaking of election promises in a first budget really surprised me.

      On a more personal level the extra tax is annoying but not going to hurt me that much. I do feel sorry for those less fortunate that are going to feel the pain from it though.

  2. Okay, well I'll have to take a look at it then, I'm certainly no expert however had made a few investments :)

    Are there any politicians that have not broken promises though? The thing that I found interesting was the lack of response from Labour, it was rather lacking in substance.. Yes might need to buy another investment property sometime soon to offset those taxes :)

    There is going to be a lot of struggle for lower income earners that will really put pressure on families in this situation

    1. I'm used to politicians breaking their promises but the idea of getting elected using claiming a lack of 'trust' on the other side and then immediately reneging on promises just left a bad taste in my mouth.

      Let me know what you think of the book!

    2. Trying to get a hold of it, doesn't appear to have an E-Book version (amazing in this day and age ha) and can not seem to buy/find on Amazon or any other sites..

      Any suggestions on where to track this one down?

    3. Hi Jef! I couldn't find an e-book version however Amazon has pretty cheap physical copies so I would just go with one of them (I've linked to it above).

  3. Thanks, yes will pick it up then.. Hope this is an affiliate link and I'm providing some kickback to you :)

    1. It is an affiliate link however I'm not really sure how the system works at all. I have had people tell me in the past that they have clicked the link and ordered products however I have not had any revenue from Amazon to date.

      I know a lot of people make money from affiliate marketing but I'm honestly not sure how they do it!